Voluntary overtime v right to holiday pay

Regular voluntary overtime to be taken into account when calculating holiday pay.

The EAT has confirmed in Dudley Metropolitan Borough Council v Willetts and Others that “remuneration linked to overtime work that was performed on a voluntary basis could be included in normal remuneration for calculating holiday pay”.

The case involved over 50 council employees who were employed as electricians, plumbers, roofers, storemen, operations officers, and quick response operatives. Each employee had set contractual hours of 37 hours a week. In addition to these normal working hours, once in every four weeks and, in some cases five weeks, the employees also performed the following additional duties on a voluntary basis:

  1. Out-of-hours standby shifts
  2. Attending call-outs
  3. Voluntary overtime

The regularity of the shifts and when they were performed was decided by the employees.

The EAT held in order to ensure that the employees did not suffer a detriment by taking leave, the Council should have taken into consideration any voluntary payments received when calculating holiday pay, and the failure to do so was contrary to the Working Time Regulations 1988.

The EAT found that workers are entitled to “normal remuneration”, not just contractual pay, during the four weeks’ annual leave. The pay workers receive in respect of that annual leave should correspond with their “normal remuneration”.

Determining whether a payment qualifies as “normal remuneration” is a question of fact on a case by case basis. However, the frequency and regularity of the payment will be a relevant factor to take into consideration.

Although this is a binding decision on the status of voluntary overtime when calculating holiday pay a great deal of uncertainty still remains. This is because the EAT has provided little guidance of what is meant by regular in order for a payment to qualify as “normal remuneration”.

By way of example, in this particular case, payments made over a period of years at a rate of roughly one week in four or one week in five were sufficiently regular. It is also the case that this decision applies only to pay for the 4 weeks annual leave derived from the European Working Time Directive. It does not apply to the additional 1.6 weeks under UK Regulations or to any additional contractual holidays. Is it practicable for an employer to have systems in place to assess whether overtime is sufficiently regular to be “normal remuneration” and also have different methods of calculation for the different types of leave?

Charities and Social Enterprise Autumn newsbrief 2017